Average ROAS by Industry: The Most Difficult Metric to Measure

What Is ROAS?

ROAS, or Return on Ad Spend, is a key performance indicator (KPI) that measures the revenue generated for every dollar spent on advertising. The formula is straightforward:

ROAS = Revenue from Ads / Cost of Ads

For example, if a business spends $1,000 on ads and earns $5,000 in revenue, the ROAS would be 5:1, or simply 5. While the formula is simple, the factors influencing ROAS can make accurate measurement a daunting task.

Industry-Specific ROAS Benchmarks

Every industry has unique characteristics that affect ROAS benchmarks. For example:

• E-commerce: Typically sees a higher ROAS (3:1 to 5:1 or more) due to direct-to-consumer sales and clear attribution of ad spend to purchases.

• Real Estate: ROAS is often lower (1.5:1 to 3:1) because of long sales cycles and high-ticket items that require multiple touchpoints.

• Software as a Service (SaaS): Challenges include customer acquisition costs and subscription-based models, leading to ROAS in the range of 2:1 to 4:1.

• Hospitality and Travel: Seasonal variations and fluctuating demand often result in ROAS of 2:1 to 3.5:1.

Why Is Measuring ROAS So Difficult?

1. Attribution Challenges: Determining which ad or campaign contributed to a sale is one of the biggest hurdles. Customers often interact with multiple touchpoints—social media, email campaigns, organic search—before making a purchase.

2. Offline Conversions: Some industries, such as automotive or real estate, rely heavily on offline conversions, making it difficult to attribute revenue directly to digital ad spend.

3. Cross-Device Tracking: Consumers often switch between devices before completing a purchase. Inaccurate cross-device tracking can lead to incomplete or misleading ROAS calculations.

4. Seasonality: Industries like retail and travel experience significant seasonal fluctuations. A campaign’s ROAS during a peak season may not reflect its performance throughout the year.

5. External Factors: Economic conditions, supply chain issues, and competitor activities can all influence ROAS, often beyond the control of advertisers.

Best Practices for Measuring and Improving ROAS

To address these challenges and improve ROAS measurement, businesses should:

1. Use Advanced Attribution Models: Move beyond last-click attribution and adopt data-driven or multi-touch attribution models to get a holistic view of campaign performance.

2. Leverage Analytics Tools: Tools like Google Analytics, Meta Ads Manager, and third-party platforms can help track conversions and revenue more accurately.

3. Integrate Offline Data: For industries reliant on offline conversions, integrating CRM data with advertising platforms can provide a clearer picture of ROAS.

4. Optimize Campaigns Continuously: Monitor ad performance in real time, run A/B tests, and allocate budgets to high-performing campaigns.

5. Consider Customer Lifetime Value (CLV): Especially for subscription-based models like SaaS, focusing on CLV alongside ROAS can provide deeper insights into the true value of ad spend.

Conclusion

While measuring ROAS accurately remains a complex task, it is an essential metric for businesses striving to understand the effectiveness of their advertising efforts. By recognizing industry-specific nuances and employing advanced tracking and attribution methods, businesses can overcome the challenges associated with this metric. In the end, the goal isn’t just to calculate ROAS but to use it as a tool for optimizing campaigns and driving long-term growth.